The United States and Kenya are trading partners for a variety of goods and services and the nominal exchange rate between the United States and Kenya is 1 U.S. dollar = 80 Kenyan shillings. If a burger in the United States costs $1, and a burger in Kenya costs 80 shillings: a. What is the real exchange rate? b. Suppose there is inflation in Kenya and the cost of the same burger rises to 160 Kenyan shillings so that 1 U.S. dollar can now only purchase half a burger in Kenya. Can you explain how PPP will hold in the long run? (Ignore transportation costs, tariffs, etc.)

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The Answer of The United States and Kenya are trading partners for a variety of goods and services and the nominal exchange rate between the United States and Kenya is 1 U.S. dollar = 80 Kenyan shillings. If a burger in the United States costs $1, and a burger in Kenya costs 80 shillings: a. What is the real exchange rate? b. Suppose there is inflation in Kenya and the cost of the same burger rises to 160 Kenyan shillings so that 1 U.S. dollar can now only purchase half a burger in Kenya. Can you explain how PPP will hold in the long run? (Ignore transportation costs, tariffs, etc.)

The United States and Kenya Are Trading Partners for a Variety